File Name: Exotic Options – Two Asset Cash or Nothing
Location: Modeling Toolkit | Exotic Options | Two Asset Cash
Brief Description: Computes the value of an option that pays a prespecified amount of cash as long as the option stays in the money at expiration, regardless of how valuable the intrinsic value is at maturity
Requirements: Modeling Toolkit
Modeling Toolkit Functions Used: MTTwoAssetCashOrNothingCall, MTTwoAssetCashOrNothingPut, MTTwoAssetCashOrNothingUpDown, MTTwoAssetCashOrNothingDownUp
Cash or Nothing Options pay out a prespecified amount of cash at expiration as long as the option is in the money, without regard to how much it is in the money (Figure 76.1). The Two-Asset Cash or Nothing Option means that both assets must be in the money before cash is paid out (for call options, both asset values must be above their respective strike prices, and for puts, both assets must be below their respective strike prices). For the Up-Down Option, this implies that the first asset must be above the first strike price, and the second asset must be below the second strike price. Conversely, the Down-Up Option implies that cash will be paid out only if, at expiration, the first asset is below the first strike and the second asset is above the second strike.
Figure 76.1: Two-asset cash or nothing options